Dollar up versus majors

The dollar rose against major currencies on Wednesday, erasing early losses, on fears the Federal Reserve may not signal new stimulus for the economy this week. The yen slipped against the dollar and euro after Japan unveiled new steps to curb its currency's strength and after Moody's downgraded the country's sovereign debt. Moves in the currency market were limited, and traders said there was little conviction behind them, as reflected by several back-and-forth moves inside fairly tight ranges.
While investors are worried that the US economy may slip into recession, they are not entirely convinced that Fed Chairman Ben Bernanke is ready to signal another bond-buying program when he addresses a central bank conference on Friday in Jackson Hole, Wyoming. The Fed already pledged earlier this month to hold interest rates near zero until at least 2013.
"Markets are looking forward to Bernanke and Jackson Hole and are increasingly reluctant to carry risk into the speech in coming days," said Brad Bechtel, managing director and head of sales at Faros Trading in Stamford, Connecticut. Bernanke used last year's annual Jackson Hole conference to hint at another round of quantitative easing, which eventually pumped $600 billion into the financial system.
More money in the system depresses the value of the dollar and encourages investors to seek higher returns elsewhere. The euro was last down 0.1 percent at $1.4418, while against the yen the dollar reversed early losses to trade up 0.4 percent at 76.99 yen. "Markets are bit confused about whether there will be a QE3 or not," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. Investors are taking profits, he said, pointing to a decline in the price of gold by $130 an ounce over the last two days. A Commerce Department report that US orders for long-lasting durable goods surged in July also eased some fear about the US economy.
Despite gains, the dollar remained near a record low of 75.941 yen set on the EBS platform last week, and some analysts said that could spark another round of intervention by Japan to weaken the yen. Japan unveiled a $100 billion credit line on Wednesday for companies investing overseas and stepped up monitoring currency positions of financial institutions in an attempt to curb the yen's strength.
But Citigroup currency strategist Todd Elmer said the new scheme "treats the symptoms, not the underlying cause, so it's not going to have any impact whatsoever in supporting dollar/yen." While the yen is a favourite shelter for investors who want to exit trades in higher-yielding but riskier assets, yen appreciation hurts Japan's economy by undercutting exports.
Societe General strategist Sebastien Galy said Japan "is laying the ground for far more aggressive policy." He said the dollar may grind lower in the near term and could break through its record low. "But when it does, the next shoe will drop," he said. Bank of Japan data suggested Japan sold roughly 4.5 trillion yen in a currency intervention on August 4, its biggest-ever one-day action, but it has had limited effect. Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies.